GGV Capital Follows Sequoia’s Lead, Splits in Response to U.S.-China Tensions

Silicon Valley venture firm GGV Capital has decided to split into two separate entities, one focused on Asia and the other on the United States. This decision follows a trend set by rival firm Sequoia Capital a few months ago, as American tech investors face increasing pressure to disengage from their Chinese investments due to geopolitical concerns.

“Over the last decade, the investment landscape has shifted significantly, and the operating environment has become highly complex. Against these new realities, GGV is also evolving,” the firm stated in its official announcement.

The Greater China venture ecosystem, encompassing China, Taiwan, Macau, and Hong Kong, has become more isolated recently, with foreign investor participation in deals hitting its lowest recorded level in the first half of this year.

The separation of GGV Capital’s Singapore-based operations from its current U.S. headquarters, which are divided between Menlo Park in California and New York, is slated for completion early next year, according to sources with direct knowledge of the matter.

GGV Capital, managing approximately $9 billion in assets, has a portfolio with stakes in prominent Chinese tech companies such as Alibaba, ByteDance (the parent company of TikTok), Xiaomi, and DiDi. The venture firm has invested in companies like Airbnb, Slack, and Affirm in the United States.

In recent times, U.S.-based investors, in particular, have been scaling back their involvement in the Chinese market. Their presence in deals during H1 dropped to 3.2%, down from 4.6% in the previous year, largely due to increasing political tensions between China and the United States.

The Biden administration’s executive order from August further restricted U.S. investments in Chinese startups operating in sectors like semiconductors, quantum computing, and artificial intelligence, contributing to this trend. This decision comes three months after a U.S. congressional committee initiated an investigation into four American investment funds regarding their funding of Chinese tech companies in these critical sectors.

As geopolitical tensions escalate and fierce technology competition unfolds between Washington and Beijing, U.S. investors find their room for maneuvering in the Chinese tech sector shrinking.

GGV’s investments have faced increasing scrutiny over the past six months. In July, the U.S. House of Representatives committee on the Chinese Communist Party requested information from the firm regarding its holdings in China, a request extended to other U.S. tech investors in the region.

GGV invested in Megvii in 2019, a company known for its facial recognition software. This investment drew attention, with the congressional committee’s Republican chair, Michael Gallagher, alleging in a July letter that Megvii “actively supports the surveillance of Uyghurs,” an ethnic minority in the western Xinjiang region that Beijing has faced extensive accusations of repressing.

For years, American investors have profited from betting on the growth of the Chinese tech industry, but recent developments have prompted a reassessment of their strategies.GGV Capital’s decision to split into two independent businesses, one focused on the U.S. and the other on Asia, reflects this changing landscape.

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